Small Law Firms

The Simple Law Practice: Getting Started

Interest from lawyers wanting to set up their own practices is up.

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(Image via Getty)

Lately, I have seen a lot of interest from lawyers wanting to set up their own practices. Maybe they are sick of being an employee. Or they didn’t get the job or promotion they wanted. Or they got laid off. Or that’s what they always wanted to do.

So for the next few columns, I will write about what it takes to set up a simple law practice. When I mean simple, I mean a practice with minimal overhead, costs, and management. I am hoping these columns might be useful for new attorneys or experienced employees who want to start their own firm. It might be useful for law firm owners who want to cut costs or “get back to basics” while the world is changing. But this column is one opinion and should be read with similar columns on this topic as I am sure I’ll miss a few things.

The Things You Will Need To Pay For

Annual state bar dues. Average $250/year.

City or county business license. Average $200/year.

E-fax machine ($15 – $50 startup fee plus monthly or annual subscription fee). Unfortunately, some people still use fax machines. Not a lot but enough to justify paying for one. Thankfully the startup and recurring costs are pretty negligible. You do not need to get an actual fax machine. Your computer along with your printer or scanner can also fax the documents.

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Computer, printer, and scanner ($0 to $1,500). If you already have one of these, then good for you. Otherwise, invest in a reliable laptop at a minimum. As for printers, a good all-in-one device that can print, scan, and fax should be enough. While laser printers have slightly better print quality, they are also more expensive. As a rule of thumb, you do not need a laser printer unless you do a lot of printing.

As for a standalone scanner, it might be a good idea to have if you have a truly mobile practice and want to scan documents on the go. Good options are the Fujitsu Scansnap series or the Neatdesk scanner. Otherwise, if your printer can also scan documents, that should be enough.

Office supplies ($100 – $900). Most regular office supplies are inexpensive so startup costs should not exceed more than a few hundred dollars. However, you might want to invest in office software like Microsoft Word and Excel so you can set up billing and print your own letterhead and mailing labels.

Professional attire ($1,000 – $5,000). Look, I know we are working from home, and the lawyer dress code may have relaxed a bit. But we are respected professionals. And some of us are paid more per hour than what people in some countries make in a month. Our clients trust us with their money, intimate details, and even their lives. So we have to look the part. While you don’t need to spend $1,000 or more on a suit, you should look like you have.

Things You Will Need That You Do Not Need To Pay For.

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Employer ID Number (EIN). An EIN is useful for a lot of things. First, it can act as a substitute for your social security number. A client may ask you to complete a Form W-9 before they pay you. Unless you have an EIN, you will have to input your social security number on that form. Second, you will need one to set up a business bank account. Third, you will need one to have employees and file federal and state employment tax returns.

Thankfully, getting an EIN is free and fairly simple. You can apply for one through the EIN Online webpage. In most cases, you will get an EIN almost immediately after completing the application.

Second bank account. Technically, you do not need a second bank account if you are fairly organized, do not have multiple sources of income, and have a credit card solely for business expenses. But generally, a second bank account used exclusively for your practice is a good idea.

Now I said second bank account. Not a business bank account. I’ve found that for simple practices, a separate business account does not provide any advantages. The only advantage is that your business name will be printed on checks. So establishing a business checking account might be a good idea if your business issues a lot of checks.

On the other hand, setting up a business bank account might require more work. You may need to have an EIN. Also, some banks require you to pay a monthly service fee unless you maintain a minimum balance (usually ranging from $1,000 to $5,000).

For new or simple practices, you might be better off getting a second personal account, particularly if it is free. Make sure that this second account lists your business address on the checks.

Google Voice. Assuming you have a smartphone, the Google Voice app is a must. It is free. Also, it gives you a second phone number that can be used for calls and text messages. Finally, it can record and email voice messages. And it also gives you a voice transcript (although it is not perfect).

Google Calendar. Google calendar is a great scheduling tool. It can send you reminders through your phone or through email.

Things You Do Not Need To Pay For

A limited liability entity. A lot of attorneys ask whether they should set up a corporation or a limited liability company (LLC) as soon as they start practicing. The two main reasons for wanting to do so is to protect their assets and for tax savings purposes. Also, they may have worked for attorneys who have set up entities for their practice.

The entity might not provide the protection you were hoping for. In almost all states, operating under a limited liability entity does not shield you from professional malpractice liability. It might also not help you get out of a debt, especially if you sign as a personal guarantor in case the entity defaults on their payments.

As for tax purposes, most lawyers opt to choose an S-corporation and a rare few use a C-corporation. While this subject deserves a column of its own, generally, it is better to wait until the practice starts making significant money before incorporating. Otherwise the costs of maintaining the entity will exceed the tax savings. For example, in California, it costs $800 per year to keep a corporation in good standing. The corporation must also pay a $25 annual statement of information fee. Also, you may need to pay $100 to $300 per year to purchase payroll software or hire a payroll service. Finally, you may need to pay state unemployment and disability taxes. This is because the corporation must pay the managing shareholder like an employee and must pay them a reasonable salary. So a corporate practice must save at least $1,000 in taxes in order to break even and justify the corporation’s existence.

Based on the above, you may be better off waiting until your practice starts making money before setting up an entity.

Marketing and advertising. Keep a few things in mind. First, marketing and advertising can be free — you simply need to advertise yourself. It’s slow, and occasionally dull but it eventually works.

Second, and most importantly, marketing and advertising are crapshoots. You don’t really know what works and what doesn’t, no matter what some salesperson’s “analytics” tell you. As such, as a general rule, you should spend only the amount you can comfortably afford to lose.

Startups should at a minimum spend money on a simple website and business cards.

In these pandemic times, there are less in-person networking events and more virtual events. So be familiar with conferencing apps like Zoom. And you may want to spend more time in social media groups.

The above are the bare-bones minimum startup fixed costs to start a simple law practice. I am sure I am missing a lot of other expenses. So depending on your situation, you will spend anywhere between a few hundred and a few thousand dollars to get started. In my next Simple Practice column, I will discuss recurring expenses such as rent. If you have questions or suggestions, feel free to reach out to me.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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